Trent rallies 27% in two days, hits new high on stellar Q3 results

The brokerage firm Motilal Oswal Financial Services has reiterated a 'buy' rating on the stock with a target price of Rs 4,200.

Shares of Trent hit a new high of Rs 3,849.75, surging 7 per cent on the BSE in Thursday’s intra-day trade amid heavy volumes. In the past two trading days, Tata Group company has zoomed 27 per cent after reporting more-than-doubled net profit of Rs 343.60 crore in December quarter (Q3FY24), on healthy operational performance. The company operates a portfolio of retail concepts, posted net profit of Rs 160.92 crore in the same quarter last year (Q3FY23).

Trent's standalone revenue grew 52 per cent year-on-year (YoY) at Rs 3,521 crore as against Rs 2,319 crore in a previous year quarter. Overall, operating earnings before interest and tax (EBIT) margin improved to 13 per cent for Q3FY24 from 8.5 per cent in Q3FY23.

Trent’s industry-leading revenue growth, driven by healthy SSSG and productivity, robust footprint additions, and healthy scale up within the Zudio, offer a huge runway for growth over the next three to five years.

In Q3FY24, the company’s fashion concepts registered encouraging LFL growth of over 10 per cent vis à-vis Q3FY23. During the quarter, Trent added 5 Westside and 50 Zudio stores across 36 cities including 13 new cities. This, along with raw materials (RM) cost tailwinds, led to a gross margin improvement.

At 10:06 am; Trent stock was trading 6 per cent higher at Rs 3,811.30, as compared to 0.18 per cent rise in the S&P BSE Sensex. The average trading volumes on the counter jumped over five fold. A combined 3.56 million equity shares representing 1 per cent of total equity of Trent have changed hands on the NSE and BSE.

According to Motilal Oswal Financial Services (MOFSL), Trent’s strong performance with 10 per cent LFL growth and robust footprint additions remains an outlier within its retail coverage universe that is witnessing a challenging demand environment. Unlike peers that passed on the sharp RM price increases last fiscal, Trent absorbed the impact, seeing strong customer reception and is now reaping the benefits as RM prices turn benign, the brokerage firm said in the result update.

The company’s grocery segment, Star, with merely 67 stores and an annualized revenue of Rs 2,690 crore (FY24E) is seeing strong LFL growth. This presents a huge opportunity for growth. Its own brand strategy and curated range are witnessing strong customer reception, MOFSL said.

The brokerage firm in result update said it assign 45x EV/EBITDA to the standalone business (Westside and Zudio; premium over our Retail Universe, given its superlative growth), 2x EV/sales to Star Bazaar, and 15x EV/EBITDA to Zara on FY26E, and arrive at their target price of Rs 4,200.